3
votes
0answers
38 views

Is a position-weighted sum of nominal returns for a single asset a mathematically sound calculation?

A friend of mine insists that that the following is a sound method to calculate the performance of a single holding in a portfolio, given that over time more capital has been allocated to that holding....
5
votes
3answers
139 views

Binary Option in B-S model - technical question

I want to price Binary Option in Black-Scholes model. The payoff is of the form $f(S_{T})=I_{\{S_{T}-K>0\}}$. If we assume that $t=0$ this is easy, because then we have $C_{0}=\mathbb{E}^{*}\...
1
vote
0answers
60 views

Computing Overall Return for A Single Asset Given Inflows & Outflows

I am creating a portfolio tracking model in Excel and have run into difficulty on how to track the overall performance of a single asset, given that over time more and less capital (shares) has been ...
3
votes
1answer
44 views

Use no dominance to show that the price of the call option satisfies the inequality

Assumption 2.1 - If the payoff $P$ of a financial instrument is non negative, then the price $p$ of the financial instrument is non negative. Assume $C$ is just the price of the call option, and $C^...
0
votes
2answers
68 views

if I had a 1M spread option. Would you say that was 1m notional (for IM purposes) or 1m pay + 1m rec i.e. 2m notional?

if I had a 1M spread option. Would you say that was 1m notional (for IM purposes) or 1m pay + 1m rec i.e. 2m notional?
4
votes
3answers
96 views

CIR model and calibration

I am new to quantitative finance. We know that in the CIR model the short rate can't go negative. My question then concerns calibration of CIR to a ZCB yield curve. Is it (and why?) possible to ...
4
votes
0answers
40 views

Regularity requirement for convergence of Euler scheme for stochastic integral?

Let $S_t$ be follow Black Scholes, then I am interesting in simulating the process $\int ^t _0 e^{-rt}1_{\{S_t\leq K\}}dS_t$ which is like a naive hedge of a European put, which does not work in ...
0
votes
1answer
50 views

Design models using adjusted or unadjusted stock prices (time series prediction)?

I'm creating a predictive model for closing price of stocks (using neural network and support vector machines.). Is it appropriate to use adjusted prices or unadjusted prices for this prediction ...
1
vote
2answers
64 views

Futures Contracts, Rollover, Offsets

I was reading Trading Commodities and Financial Futures by Kleinman, I saw this excerpt: When you buy or sell a futures contract, you don’t actually sign a contract drawn up by a lawyer. Instead,...
3
votes
1answer
76 views

Dickey Fuller test of stationarity differenced data

In this case study on treasury yeilds from MIT, I have a question on page 11-12. He uses this data getYahooData("^TNX", start=20000101, end=20130531) His logic on page 11 is this "only daily ...
5
votes
1answer
91 views

Prove arbitrage opportunity

The continuously compounded interest rate is $r$. The current price of the underlying asset is $S(0)$ and the forward price with delivery time in 1 year is $F(0,1)$. Short selling of the stock ...
1
vote
1answer
71 views

Error when trying to estimate a Markov-switching Var model in R

I'm trying to estimate a Markov-switching VAR in R using the command msvar. These are the first 10 entries of my two time series. I have 798. When I try to run this I get an Error message ...
4
votes
1answer
112 views

Mixing Portfolio Strategies

Given a set of $N$ assets, the amount of strategies proposed in literature to diversify the investors wealth in order to find the 'optimal' portfolio is overwhelming. However, for example DeMiguel et ...
1
vote
0answers
36 views

Effect of surprise dividends on options

The ETF in question is VDC It pays about $2.5 a year in dividends, but the payout dates are very erratic If I were to go long VDC with options, what would be the best way of doing this to avoid ...
1
vote
0answers
28 views

Feedback on Video Metadata Extraction

I've developed/patented a metadata extraction methodology, which we've used to build a variety of alternative datasets for funds. One of the more difficult issues in this field, is getting useful ...
2
votes
2answers
61 views

Difference in Volatility Calculation from RiskMetrics 1996 to RiskMetrics 2006 VaR

In the original legacy RiskMetrics documentation from 1996, volatility is calculated using a simple exponentially weighted moving average with some decay factor to determine the weights. This would be ...
2
votes
1answer
60 views

Linear Regession 3 methods different results

Morning, So I use a package called Ninja Trader that has a linear regression method, I have also written my own method and compared the results to excels linear regression method. All three are ...
1
vote
1answer
69 views

Historical Scenario analysis for stress testing

I am doing historical scenario analysis in order to calculate stressed VAR for which I have taken 2007-2008 US crisis. I have two question in this regard:- 1) As we have to take prices for stocks ...
0
votes
0answers
39 views

How to solve this system of ODEs?

Im trying to replicate the procedure of the Hackbarth et al. 2006 paper. Im trying to solve the ODEs (12) and (13) on page 525 in the paper, following the solution by the authors given in appendix A. ...
0
votes
0answers
37 views

Exponentially weighted random matrix - which variance should I use?

I am currently playing around with exponentially weighted correlation matrices and filtering based on Random Matrix Theory. However, there is one thing I am not really sure about: In the equation ...
0
votes
1answer
46 views

Trying to calculate WACC (Weighted Average Cost of Capital) for this (small) data set

I've attached the data set I'm working with to this post. I'm trying to calculate the WACC using this data. I found a formula here: http://www.investopedia.com/ask/answers/063014/what-formula-...
1
vote
1answer
89 views

Forecasting sales from balance sheet data

I have got a database with balance sheet and income statement data of 150.000 firms for the period 1995-2014. I need to get a good forecast of each firm's sales. As exogenous variables I can use the ...
0
votes
0answers
22 views

Consolidating Off-Balance Sheet Financing for Banks

Many banks use off-balance sheet vehicles and minority-owned non-consolidated subsidiaries to circumvent capital regulations. The parent bank's asset exposure is taken to be limited to its equity ...
0
votes
2answers
56 views

Java platform/lib widely use in industry

I am currently switching from Java dev to quant and for my self-study I want to code a few auto-trading algorithms to get my hands on the subject. Are there any must know platforms/libs that I should ...
8
votes
3answers
236 views

Why is volatility said to be persistent?

Persistence in volatility of stock returns is one of the common 'stylized facts' when it comes to analyzing time series. However, I am wondering for theoretical arguments why (estimated) volatility ...
1
vote
1answer
85 views

A simple question on Delta hedging

In the Black and Scholes model, when it is needed to immunize the portfolio from variations in the stock the argument given is the following. If $\alpha_t$ is the amount of invested in the stock, $\...
7
votes
2answers
522 views

Why do institutions backtest?

I see that institutions still use backtesting by computing P&Ls over historical data and then compute some aggregating ratios to see whether a trading strategy is good or not even though it is not ...
2
votes
1answer
100 views

Why is $N(d_2)$ not needed for hedging?

I'm trying to understand delta hedging. If I sell a plain vanilla call option, in order to delta hedge it, I have to buy delta amount of stocks. What I don't understand is that the BS price of the ...
1
vote
0answers
53 views

How to choose the stock exchange to trade a stock?

Let's take an example : Hewlett Packard. The company is listed on both Nasdaq and Nyse. Correct me if I am wrong but as we can trade it on 2 different stock exchanges the price of the stock may ...
1
vote
1answer
35 views

Calculate total risk [closed]

I have a question regarding how the risk is calculated, if I have only the returns. I think the risk premium (rp) is just the average of the returns and the sharpe ratio is the risk premium divided by ...
4
votes
2answers
231 views

How to derive Black's formula for the valuation of an option on a future?

I've got a question about 1976 Black Model and Bachelier model. I know that a geometric brownian motion in the P measure $dS_{t}=\mu S_{t}dt+\sigma S_{t} dW_{t}^{P}$ for a stock price $S_{t}$ leads (...
1
vote
1answer
100 views

Second Moment of Stock Process

I have a stock process which I have decided to model as $$S_T=S_t\exp((r-q-\frac{1}{2}\sigma^2)(T-t)+\sigma(W_T-Wt))-D_T$$ where $D_T$ is a cash dividend at time $T$. This dividend is known. I then ...
4
votes
3answers
184 views

Why are investors risk-averse?

In CAPM, we assume people are risk-averse and people get compensated for the systematic risk they suffer. The assumption that most people are risk-averse makes sense, but why are the rational ...
0
votes
0answers
23 views

Api to communicate with GlobalServer trading software

We are using this somewhat old software called GlobalServer and TS2000i by Omega research for capturing market data and generating systematic trading signals. I am using a third party software to ...
1
vote
1answer
73 views

Order flow intensity

I am interested in how to calculate order flow intensity. I got access to high frequency data and can simulate a limit order book. What is the best approach if I want to calculate order flow intensity?...
1
vote
2answers
90 views

Which proxies to user for investor sentiment and industry performance, and where to find the data?

I came up with the idea of dealing with investor's sentiment effect in stock market in my thesis. I would like to know which proxies you would suggest to use as sentiment index and from which source ...
5
votes
1answer
63 views

Where to find E-mini S&P options price data or chart?

ES futures price data is easy to find, e.g. on Yahoo finance or with a free NinjaTrader demo account. I'm looking for the same for options on that futures contract. The best I could find is the ...
2
votes
1answer
94 views

Intraday data frequency

How should I determine what frequency should I use for doing microstructure research using intraday data? For some reason, there seems to be general consensus of using 5 minute interval, but is there ...
0
votes
0answers
61 views

Stock price distribution from options marks

I am reading the following link: on "recovering probability distributions from option prices" - how to subtract influence of stochastic volatility? At the end of the derivation it seems ...
1
vote
2answers
124 views

Modelling and forecasting mixed frequency financial data

I was wondering if someone could provide some guidance to me. I would like to Combine various financial data of mixed frequencies (some daily, weekly, some quarterly) to a composite index. I have ...
1
vote
0answers
47 views

Is this a GARCH Monte-Carlo simulation?

I tried this as a simulation for a GARCH(1,1) model. Is it correct? (I'm not speaking about the code itself, which works, but the underlying idea). Here is plot (of ...
0
votes
0answers
136 views

QuantLib importing in Python

Since I am working with a thesis, QuantLib is a very new thing for me. I have installed and compiled QuantLib, including the QuantLib-SWIG. Everything was compiled and installed using the guidlines at ...
1
vote
1answer
61 views

How to convert bond options strikes to future prices

CME, 10 year Note Call Strike 1300 How to convert this strike to future price? (today's open at 131'100) For example we can take current prices EOD data for example chart on CMEgroup: http://www....
3
votes
2answers
81 views

Security Market Line & Required Rate of Return for Projects

A standard definition of the Security Market Line is as follows: The security market line ("SML" or "characteristic line") graphs the systematic (or market) risk versus the return of the whole ...
1
vote
0answers
67 views

How to calculate cumulative returns with one lag in R

I have a huge data frame with over 1000 column, which are companies(column headers) and in each column I have their estimated return(monthly). The sample period of the data frame in 11 years. I want ...
0
votes
1answer
47 views

Conversion factor and CTD Bond

I'm reading the book 'Options, Futures and Other derivatives' an having a hard time to understand Conversion factor and CTD bond. Conversion factor I understand this as a factor to adjust the ...
1
vote
1answer
88 views

the difference between forward price and future price

In Hull's book 'Options, Futures and Other derivatives', author said that when price of underlying asset S is strongly positively correlated with the interest rate, future price is slightly larger ...
0
votes
0answers
46 views

Can you calculate the current stock price with the Call-Put Parity

Given the Call-Put Parity: $$ C - Ee^{-rT} = P - S(0) $$ Where: $$ C = Max(S(T) - E, 0)\\ P = Max(E - S(T), 0)\\ E = Strike Price \\ S(0) = Spot Price \\ S(T) = PriceAtMaturity \\ r = RiskFreeRate \\ ...
5
votes
4answers
246 views

Statistics for quantitative finance

I am looking for an advanced introduction to statistics. I am currently interviewing for hedge fund positions, and a solid base in statistics would be quite helpful. As a math major I have significant ...
2
votes
3answers
132 views

How to understand nonrandom/random process in Shreve book?

I have been reading Chapter 4 of Shreve's Stochastic Calculus for Finance II. It is easy to understand the simple process, $\Delta(t)$, defined on Page 126, which is just a constant inside a given ...

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